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Theranos, Elizabeth Holmes Charged With 'Massive Fraud' By SEC

The founder and CEO of one of the largest private biotech companies in Silicon Valley has been accused by the U.S. Securities and Exchange Commission of orchestrating a “massive fraud” related to its technology and financial performance.

What Happened

The SEC on Wednesday issued a statement saying Theranos Inc. and its founder and CEO Elizabeth Holmes deceived investors for years by exaggerating and falsifying information related to the company’s portable blood analyzer products.

The SEC alleges Holmes and former Theranos president Ramesh Balwani fabricated data related to the effectiveness of the blood testing products. The SEC also said claims that the company made that its products had been deployed by the U.S. Department of Defense in Afghanistan were false. The company said it would generate more than $100 million in revenue in 2014, but the SEC said it generated only about $100,000 in revenue that year.

Why It’s Important

Investors in public companies operate under the assumption the SEC is watching their back when it comes to fraud, but private companies also fall under the SEC’s jurisdiction when it comes to protecting investors.

“There is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention,” SEC enforcement division co-director Steven Peikin said in a statement.

Theranos had reportedly raised more than $700 million in funding from private investors.

What’s Next?

As part of a lawsuit and settlement with the SEC, Holmes agreed to pay a $500,000 fine and surrender voting control of Theranos. She's also barred from serving as an officer of a public company for 10 years.

In a statement, the company said it's happy to be moving on from the incident.

“The company is pleased to be bringing this matter to a close and looks forward to advancing its technology,” Theranos said.